The United States stock market consists of approximately $42 trillion in net worth. Of that, 72% of the wealth is held in what we call taxable accounts. And, once you get past the day traders, the average holding period for a publicly traded investment in the United States in 1.92 years.
Those foundational points are important to keep in mind when you think about the nature of taxation in the United States and one of the most underrecognized benefits of stock ownership—the deferred tax nature of capital gains.
In the United States, it is currently the case that you do not owe taxes on the increase in value of an investment until you sell it. There are logistical and philosophical reasons for why this is the case. Logistically, the value of investments fluctuate so taxation during the middle of your holding period would be difficult to execute. If someone owed … Read the rest of this article!